Exploring the feasibility of Europe’s renewable expansion plans based on their profitability in the market

Jonas Finke, Valentin Bertsch and Valeria Di Cosmo

Energy Policy, 2023, vol. 177, issue C

Abstract: Different policies aim at transforming the European energy sector. To support decision making in this context, energy system models with a central-planning approach are frequently used. However, private sector investments are required to realise the transformation and there is a shift towards more market revenue-based paradigms. Therefore, we assess the market-based profitability of renewables in 2030 across Europe under current policies, in particular renewable share targets. As several key assumptions drive the system design and profitability likewise, we perform an endogenous expansion planning to obtain a European least-cost electricity system for 2030 and shadow electricity prices to determine internal rates of return and net present values. We find that the profitability of solar PV, on- and offshore wind varies significantly across Europe, mainly driven by market values, financial and natural resource conditions. In a least-cost system enforced to fulfil national targets, renewables are mostly not profitable. Renewable expansion driven by an appropriate CO2 price allows for exceeding the EU-wide renewable target of 65% and achieving internal rates of return at or above the costs of capital. Therefore, policy action is required to achieve climate goals, e.g. by moving towards EU-wide renewable targets, market-based policy instruments or providing additional revenue sources.

Keywords: Renewable energy policy; Energy system modelling; Merit order effect; Renewable market value; Profitability; Emission reduction (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:enepol:v:177:y:2023:i:c:s0301421523001519

DOI: 10.1016/j.enpol.2023.113566

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